Good morning. My name is Ery and I will be your conference operator today. At this time, I would like to welcome everyone to PPL Corporation's Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.

I would now like to turn the call lover to Tim Paukovits, Director of Investor Relations. Sir, you may begin your conference.

Timothy J. Paukovits - Director of Investor Relations

Thank you. Good morning. Thank you for joining the PPL conference call and third quarter results and our general business outlook. We're providing slides of this presentation on our website at www.pplweb.com.

Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the Appendix to this presentation and in the company's SEC filings.

At this time, I would like to turn the call over to Jim Miller, PPL Chairman, President and CEO.

James H. Miller - Chairman, President and Chief Executive Officer

Thank you Tim and good morning everyone. Today we plan to follow our usual format, beginning with general business update and commentary on our third quarter results we announced this morning following... followed by a Q&A session as always.

Today we're reporting third quarter GAAP earnings of $0.54 a share compared with $0.84 per share in the same period a year ago. For the first nine months of 2008, GAAP earnings were $1.73 per share compared with $2.25 per share a year ago.

Driving the decline in third quarter and year-to-date reported earnings is a significant decline in the wholesale energy margins. The company's wholesale energy margins decline was driven by unrealized losses in our marketing and trading activity and extended outages at two of our large coal-fired power plant in Pennsylvania.

The margin declines were partially offset by improved earning from our UK delivery business. While Bill Spence, will provide further details on both margins and the power plant outages, I'd like to take a minute to put this quarter's results in some perspective.

As you know, during the third quarter, there was unprecedented volatility in the energy commodities market, a rapid decline in liquidity doing an elimination of market participants and a 25% to 35% drop in forward wholesale electricity prices.

Due to this lack of liquidity, we were unable to unwind certain market positions, which led to the unrealized losses included in the results that we reported to you today.

Our approach has been to conservatively market and trade around our assets, utilizing appropriate stop loss controls. Under most market conditions, these controls would have limited our losses to a small amount. In light of the reduced market, liquidity and volatility, we've taken steps that I believe will limit these types of trading exposures going forward. Our approach to the marketing and trading business has been very profitable for us over the past several years and we expect it to be profitable this year as well.

We've also addressed the outage at our Montour plan which will return to normal operation later this month. And Bill will cover more details on that during his update.

Clearly, this was a challenging quarter for the company. It also was clear that the worldwide financial crisis has had and will continue to have a significant impact on wholesale electricity markets for the foreseeable future, and that we need to adjust our tactics accordingly.

I want to emphasize however, that our long term strategy focused on the efficient operation of our generating assets and marketing the output of these assets, combined with effective operation of our regulated delivery systems continues to provide significant value for our share owners.

As you know, we have excellent generating assets in one of the largest and most active wholesale energy markets in the world. Our marketing and trading operations focused primarily on using these assets to serve load following needs of utilities in the Mid-Atlantic and Northeast.

And our strategic approach to making the most of our generation assets continues to hold significant growth potential for 2010 and beyond, upon exiting our rate cap period. More on that in a few minutes, but let's first cover ongoing earnings.

Earnings from ongoing operations for the third quarter declined to $0.45 per share from $0.72 per share a year ago. For the first nine months of the year, earnings from ongoing operations were $1.56 per share versus $2 a share a year ago.

Ongoing earnings for the quarter and year-to-date were affected by the same drivers as reported earnings. And Paul, will provide more details on the third quarter's financial performance.

Before we hear from him, I'd like to talk about our forecast for this year as well as 2009 and also 2010. As we announced earlier today, we've revised our forecast for 2008 earnings from ongoing operations to a range of $2 to $2.05 per share, primarily as a result of the lower energy margins I just discussed.

Today, we're also initiating our 2009 forecast earnings range of $1.60 to $1.90 per share. The 2009 forecast takes into account a number of factors including ongoing cost pressures, fixed generation prices in Pennsylvania for the last year of our rate cap period, rising cause to financing and credit facilities and a stronger U.S. dollar.

So, given the ongoing uncertainty and financial in power markets, we'll be focused on aggressively managing risks and preserving capital without jeopardizing our expected significant increase in earnings and cash flow for 2010 and beyond. And as we've been saying for some time we're well positioned for this time horizon.

Based on the value we've created, through all of our hedging activities and marking the un-hedged power and fuel positions to market, we're revising our 2010 forecast to $3.60 to $4.20 per share. And again, Paul will provide additional details on this revised forecast.

This 2010 forecast is based on a solid foundation of having already sold more than 80% of our 2010 expected base load generating output and 100% of the available capacity. As well as having fuel contracts in place that are significantly below market.

Strong, longer term fundamentals remain in place for PPL. There is unlikely to be substantial new generation on the market, resulting in lower reserves margins. We have high performing, relatively low cost generating assets. We have sufficient credit facilities and improving cash flow and we have very visible earnings from our supply business and our electricity delivery businesses in Pennsylvania and the U.K.

The unprecedented events in the past couple of months appropriately have caused companies in this sector to reexamine their strategies and tactics and PPL is no exception.

I'm pleased to tell you that our long-term strategy continues to support growth for its share owners. And now I'd like to turn the call over to Paul and then Bill to provide further details on our reported results, our forecast, our updates on some key business items.

After that we will take your questions. Paul?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Thanks Jim. Good morning everyone. Before I begin, I'd like to remind everyone that earnings from ongoing operation include the operating results of the Divested Latin American and Gas delivery businesses that excludes special items related to their divestiture.

Third quarter earnings from ongoing operations are significantly lower than last year as Jim mentioned, driven by lower energy margins in our supply segment and partially offset by higher international earnings.

Turning to slide 7, I'll review the supply segment performance in more detail. The supply segment earned $0.16 per share in the third quarter of 2008, a $0.34 decrease compared with last year. The decrease was primarily driven by lower East energy margins as a result of unrealized losses on certain trading position as well as lower base load generation resulting from unplanned outages at two of our large coal-fired power plant in PA.

We filed an 8-K earlier in the third quarter detailing the expected decline in forecast earnings due to the partial collapse of sub-structure surrounding one of the Montour cooling towers. And Bill will discuss more on these drivers in his remarks.

Beyond the outages, margins were also negatively impacted by higher average coal prices. Partially offsetting these negative margin drivers are higher realized margins from various supply contract. Also contributing to lower earning versus last year, are higher depreciation expense of $0.02, a loss of $0.03 synfuel-related earnings and higher financing cost driven by higher debt levels, healthy issuance from credit facilities and the cost of additional credit capacity that was added late in the quarter.

The higher depreciation related to placing the Montour scrubbers and service and the operator Susquehanna handling Unit 1 that went into service during the second quarter of '08.

As a reminder, the first phase of the upgrade added 50 megawatts with the remaining 109 megawatts being added in early 2009 and early 2010.

Moving to slide 9, our international delivery segment earned $0.20 per share in the third quarter of 2008, a $0.07 increase compared to year ago. The increase was the net result of a UK tax benefit on a change in UK tax law. Lower U.S. taxes on planned cash repatriations this year, lower O&M driven by lower pension expense and the loss of $0.03 per share in earnings from PPL's Latin American businesses, which were sold in 2007.

As Jim mentioned, we are revising our 2008 ongoing forecast to a range of $2 to $2.05 per share from the prior forecast range of $2.17 o $2.27 per share. The margin impact affecting third quarter earnings leads us to this revised '08 forecast.

We now expect energy margins to be $0.33 per share lower in 2008 compared with 2007. We expect the decrease it's primarily driven by lower margins from marketing and trading activities, lower coal-fired generation and higher fuel costs.

These decreases are partially offset by higher nuclear and hydro-generation and improve power value driven primarily by higher electric sales prices in the west, and higher sale prices under the polar contract between PPL EnergyPlus and PPL Electric Utilities.

Other factors impacting our expected 2008 earnings are lower O&M of $0.06 per share, the $0.18 per share loss of synfuel-related earnings, a decrease of $0.08 per share as the result of the sale of our Latin American portfolio. And high depreciation expense primarily again in the supply segment due to the scrubbers coming online and this year's Susquehanna Unit 1 upgrade project.

Now let's take a look at 2009. As we stated on our second quarter call and as Jim just mentioned again this morning, many of the cost pressures that are impacting 2008 earnings will negatively affect 2009 earnings as well.

The earnings walk on this slide reflects our current expectations for 2009, over what we expect to achieve in 2008. The major drivers of our 2009 earnings forecast, are higher expected energy margins were $0.22 per share primarily driven by improved power value from higher electric sales prices in the West and higher sales prices under the polar contract began between EnergyPlus and EU, higher margins from marketing and trading activities, higher coal-fired and nuclear generation and higher fuel costs.

These higher energy margins are more than offset by higher O&M primarily due to additional planned outages at our coal-fired power plants. Higher operating costs associated with the scrubbers and higher operating costs of WPD.

Higher financing costs due to higher debt balances and the increased cost in credit facilities, unfavorable UK exchange rate, UK tax benefits recorded in '08 that are not expected to recur in 2009. And higher depreciation due to scrubbers and precipitators that are expected to go into service during 2009, and generally higher plant and service throughout the company.

Turning to slide 12, today we also revised our 2010 earnings forecast to a range of $3.60 to $4.20 per share. This slide includes the drivers between expected '09 and '10 earnings and on the next slide I'll walk you the change in the new 2010 forecast over the previous forecast for 2010.

2010 earnings growth is driven by higher energy margins which are expected to increase $2.40 per share. These higher energy margins are primarily driven by improved power values, higher capacity prices, higher coal-fired and nuclear generation and higher expected margins from marketing and trading activity.

Higher U.S. taxes in the international segment, higher financing cost due higher debt balances and higher depreciation due to higher plant and service throughout the company.

Now let's move to slide 13, and I'll walk you through from the mid-point of our previous forecast to the mid-point of our new forecast for 2010. The decrease in the forecast is primarily driven by higher financing costs, mainly in the supply segment due to higher debt balances and the higher cost to credit facilities, higher O&M primarily in our supply and Pennsylvania delivery segment, lower earning from WPD, primarily driven by a less favorable expected exchange rate and slightly lower energy margins in 2010, as a result of lower expected margins from our marketing and trading activities.

It's extremely important to note that the margins expected from our core generation activities have not changed from the prior forecast to the current forecast as we were able to hedge significant quantities for 2010 and beyond in Q1 and Q2 of this year when prices were much higher.

Other category includes lower Pennsylvania delivery revenue and higher operating expenses other than O&M. We continue to expect that approximately 77% of our 2010 earnings will come from our supply segment with the contribution of our international Pennsylvania delivery segments to be 15% and 8% respectively.

Slide 14, on cash flow incorporates our current earnings forecast. While we continue to expect negative free cash flow before dividend this year, we do expect it to turn positive next year.

Given the uncertain financial times, the increasing cost of financing and our desire to preserve capital, we have cut our CapEx budget by $200 million for 2009 mainly coming from discretionary CapEx from the supply segment including new renewable investments being eliminated, certain hydro expansion opportunities being cut back and significantly scaled back nuclear development activities.

We are still working on the CapEx numbers for 2010. But most of that year-on-year CapEx increase is coming from expected increases in CapEx in the waters businesses. At WPD, due to regulatory requirement resulting from the next price control review and higher transmission CapEx in electric utilities.

While I did not include a separate slide on dividends, they remain an important part of total share owner return, especially in difficult financial times. We will evaluate our dividend level late this year on finalizations of our normal business planning process.

Given the current credit environment, we wanted to provide further details on our credit facilities and collateral postings. We remain highly focused on maintaining our strong credit profile and liquidity position.

We have more than $4.2 billion in credit facilities supporting the activities of our supply business and our hedging strategy. This provides us with one of the strongest liquidity positions in the sector.

Taking into account outstanding letters of credit and draws against the facilities, we have more than $3.2 billion available at PPL Energy supply under the existing facilities. The supply segment has diverse group of 24 banks providing credit with no bank having more than 13% of the total commitment.

The credit facilities on slide 15, exclude amounts previously committed by Lehman Brothers due to their bankruptcy filing. The credit facility needs a PPL Electric Utilities and WPD are clearly not as substantial as the supply segment. However, both are in solid liquidity positions as well.

Moving on to collateral, we though it would be helpful to review the level of credit posting that we've had for the supply business and this slide reflects the strong liquidity position that's been maintained over time.

The posting increased earlier this year, obviously as power prices began to rise significantly when prices peaked mid-year postings total less than half the capacity available, inclusive of available cash providing the supply business with the necessary liquidity to withstand further price moves as well as credit downgrades.

As we all know, prices fell from those mid-year highs and a significant portion of the collateral has been returned to us. These credit facilities clearly remained valuable to the company as we looked to put additional hedges on for the future and Bill will talk about more about our hedge strategy in his remarks.

Finally, PPL is also in a strong position from a debt maturity perspective. Last month, PPL Electric Utilities was able to issue $400 million a five year notes in an extremely tight credit environment and late last year WPD free funded the majority of the remaining 2008 refinancing needs.

The EU issuance in October was executed at time as many others in the sector were not able to issue debt securities and the proceeds from that issuance will be used to partially pre-fund next year's $486 million of maturity.

With that I'd like to turn the call over to Bill for an update on operations. Bill?

As Jim indicated we have revised our marketing and trading operations in light of current and expected market conditions. But I do want to put our 2008 results in some perspective.

As you can see form slide 18, our marketing and trading has been profitable each of the last four years. Even with the poor third quarter results the business has contributed positively to margins thus far in 2008, a positive $43 million year-to-date.

In the third quarter we saw a rapid decline with liquidity which coupled with the sharp decline in prices caused due to significant mark-to-market loss. This price drop affected several power positions of PPL EnergyPlus was unable to quickly close out due to lack of liquidity in the foreign markets.

While some of liquidity remained in the front of the power market, there was virtually no liquidity in the back-end of the power curve, which is where we held these positions.

I think most of you aware that banks and other market makers were forced to exit or significantly scale back their operations in the power market due to the credit crises. Unfortunately, this prevented us from officially exiting our positions.

The trades were well within our bar and our value risk limits. And in normal market conditions as Jim said, we would have hit stop less trigger and exited with a relatively small loss.

As you can see from this slide, we've had relatively small trading profits in the past and I firmly believe we would have limited our recent losses if not for the unusual market conditions we faced in the quarter. I think you can also see from the bottom of this slide that the entire marketing and trading is a relatively small portion of our overall supply margins. This is clearly a very different market and we've scaled back our risk profile and lowered our other forecast of earnings from this segment going forward.

We do believe it's important to maintain some limited presence in marketing and trading over the long-term. The operation provides effective price discoveries for hedging our generation output and managing our fuel inputs. And our marketing group provides multiple avenues for selling generation output.

On a more positive note, the reduced number of market participants may provide better margin opportunities as we market our generation into this environment.

Turning to slide 19, I'd like to address the other significant challenge we faced in the third quarter. The previously announced partial collapse of a cooling tower at Montour... Montour power plant. As you can see from this photo, we're making excellent progress and for placing the entire tower. I expect the plant to resume full operation within the next several weeks. This outage and another unplanned outage at our Brunner Island plant reduced quarterly earnings by more than $0.10 per share.

On slide 20, we've updated our hedge positions for electricity and fuel as of September 30. Taking a look at 2010 electricity sales, we've increased our hedged positions, since the second quarter call. We're able to take advantage of high prices in the market in early July and increased our expected generation hedge position overall from 68% to 76%. We're also providing our hedged positions for 2011 and 2012 for the first time.

We have done a significant amount of hedging as you can see in those years as well with 46% hedged in 2011 and 26% hedged in 2012. On the fuel side, we've contracted for additional coal for 2009 and 2010 and are in a favorable coal position in 2011 and 2012 and we have 50% of our total expected coal burn hedged now through 2018.

As discussed on our last call, we do have some exposure to spot coal purchases associated with our joint interest in the Keystone and Conemaugh plants and you can see the estimated un-hedged volumes on the bottom of this slide.

Our average hedged fuel price for each year are substantially below current and forward market prices and provide a valuable foundation to provide more predictable earnings going forward. This will be evident when we review our open EBITDA position in a few minutes.

Turning to slide 21, coal, nuclear and hydro, our base flow generation, makes up more than 90% of our expected generation output in any given year. And it's really the value driver over generation suite.

For 2008 and 2009, we sold essentially all of our base flow generation output and are not materially sensitive to power price changes in these years.

For 2010, we've hedged about 80% of our base flow generation which provides the company with the solid base of earnings growth we're now forecasting. Again, for 2011 and 2012, our marketing and trading group has been able to hedge a significant portion of our base flow generation at favorable prices.

I would also like to note that substantially all of our capacity has been hedged primarily through the RPM auctions and PGM for 2011.

Turning to slide 22, today, we're providing an update to our 2010 opening EBITDA position and for the first time, providing a look at our positions for 2011 and 2012. Continuing with our practice of updating our open EBITDA position with prices at the end of the quarter, slide 22 has been updated to reflect forward prices as of the end of September, which are available on page A1 of today's presentation.

Based on oil prices at September 30, the un-hedged gross margins of the supply segment and 2010 would be about $3 billion, with associated O&M of $860 million. This brings the value of our open EBITDA to $2.2 billion. The change since the second quarter reflects the steep prize declines to the power markets and our revised the expectations from O&M.

We do see growth in our open EBITDA for 2011 and 2012. The growth in 2011 is driven by the full year margin impact of the nuclear operates, expected to be completed in 2010. Also included in 2011 since capacity revenue generated from the long view coal plant under construction in West Virginia. Under this contract, PPL will buy electricity and capacity at fixed prices, which would determine in January 2007. We will start to receive the capacity in June 2011.

The growth in 2012 comes from the full year impact of long view capacity, along with electricity from long view that we start to take on January 1, 2012. We've also noticed the positive mark of our hedges. This is due to the positive mark on our fuel hedges partially offset by some below market tower contracts.

Slide 23, provides you with the earning sensitivities from capacity, energy sales, and changes in equivalent availability, so you will be better able to model our forecast as market conditions change. This is something that several of you have asked us to incorporate and we are proving this for the first time.

As Jim said, our long-term view for the power market is strong. And we remain optimistic about PPL's long term earnings growth. As utilities in the PGM region begin their default supply procurement processes, in the coming year, I believe PPL will be in a very competitive position. I look for us to be successful in this options and I believe this might provide further growth opportunities for PPL.

Now I'd like to turn the call back to Jim Miller for the Q&A.

James H. Miller - Chairman, President and Chief Executive Officer

Alright thanks, Bill. Operator we're ready for questions.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of Ashar Khan of SAC Capital.

Ashar Khan - SAC Capital

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning, Ashar.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Good morning, Ashar

Ashar Khan - SAC Capital

Going to page... slide 22, the above market value of rally of hedges $200 million, $174 million, $169 million. Could you break this... how much of this is coal versus electric prices? Is it majority of it because of the coal contract?

James H. Miller - Chairman, President and Chief Executive Officer

I believe that's correct Ashar.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes one second, it's $122 million.

James H. Miller - Chairman, President and Chief Executive Officer

We're just checking it.

Ashar Khan - SAC Capital

So in essence, because we just have very good coal contracts, this value of the hedges are going to remain. They're going to reverse until the full contracts expire, which is I guess later on in the next decade. Is that correct?

James H. Miller - Chairman, President and Chief Executive Officer

Yes, and one of the things that I mention on the last call was that we were planning and forecasting to be at the high end of many of the coal contract that have powers in them. So that does reflect the higher price at the ceiling if you will for those contracts that have those provisions.

Paul A. Farr - Executive Vice President and Chief Financial Officer

To give you some order of magnitude Ashar, on the fuel side it around a $470 million positive in the $200 million and a negative $290 million on the electric hedge side.

Ashar Khan - SAC Capital

Okay.

Paul A. Farr - Executive Vice President and Chief Financial Officer

There is some other... few other positive marks for renewables and low powering deal.

Ashar Khan - SAC Capital

Okay. Thank you very much.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Sure.

Operator

Your next question come from the line of Greg Gordon of Citigroup.

Greg Gordon - Citigroup

Thank you. Good morning.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Good morning

James H. Miller - Chairman, President and Chief Executive Officer

Morning.

Greg Gordon - Citigroup

The $0.11 delta from... the old guidance to the new guidance on O&M. I'm just doing a rough calculation. It seems like $0.07 or $0.08 of that is the higher O&M in the tower, the $8.59 versus the $8.14 renewable guidance? And the remainder I guess, is that PWD and the utilities?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Correct.

Greg Gordon - Citigroup

Okay, great. And then can you talk about when you gave your guidance last year it's $56.2 million... in 56.2 total hours assumed in your open EBITDA on the August 1st, you're down to 55.5?

Okay. And when I just rough math, and I look at the un-hedged gross margin of 4299 in last presentation versus the 068 now, just about it by the megawatt hours, it goes from 76.50 to 55.25, on a gross margin per megawatt hours. That's $21 change.

By looking at my price back, I'm not might going to presume that my price points are same as yours. I see that power prices have declined from... about $15 over that same timeframe. So, I might assume then that either my numbers aren't what you are seeing or that the delta difference is you hedged all the higher prices?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Well, no, because on an open basis, that would just have included the Montana coal that the other coal would have been out market.

Greg Gordon - Citigroup

Just let me re-phrase the question, from your perspective is the entire decline in gross margin priced or did you also locked in higher coal over the period?

Paul A. Farr - Executive Vice President and Chief Financial Officer

It would be entirely because of the price. Our declines would indicate a higher increase than that. And I think as either Jim or Bill mentioned in their prepared part of the comments. We've seen kind of a cost curve if you will 25% to 35% decline. So, starting with that implied low 70s number into a low 50s number that's put just right in the ballpark.

Greg Gordon - Citigroup

Okay.

Paul A. Farr - Executive Vice President and Chief Financial Officer

And remember, we have said at the end of Q2 that even in that point in time were are reporting early August that we were down, at that point they already closer to where we were at the end of Q1. So, we've seen further degradation. But we did indicate those numbers were down at that point as well.

Greg Gordon - Citigroup

The WPD $0.07 delta, is that all currency translation or is there some underlying change in operating assumption?

Paul A. Farr - Executive Vice President and Chief Financial Officer

The $0.07, it's almost all currency.

Greg Gordon - Citigroup

Thank you.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes.

Operator

Your next question comes from the line of Paul Patterson of Glenrock Associates.

Paul Patterson - Glenrock Associates

Good morning, guys,

Paul A. Farr - Executive Vice President and Chief Financial Officer

Good morning, Paul.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning, Paul.

Paul Patterson - Glenrock Associates

Just to follow-up on the currency, is that basically you guys look at the forward currency and that's what causing you to lower the numbers up that pretty much it.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes.

Paul Patterson - Glenrock Associates

Okay. When, looking at slide 12, how much of the energy margin of 240, do you guys have for trading and marketing?

Paul A. Farr - Executive Vice President and Chief Financial Officer

There approximately $125 million in the 2010 expectation, which again if look at where we were on a year-to-date basis from an expected marketing perspective get back to that kind of a number by that timeframe. It's been reduced from that number for 2009 given current condition.

But again, I expect we'll remain significantly competitive as folks exit this pace and I believe, Jim... Bill mentioned that his remarks so.

Paul Patterson - Glenrock Associates

What is it for 2009?

James H. Miller - Chairman, President and Chief Executive Officer

$5 million [ph] plus.

Paul Patterson - Glenrock Associates

I'm sorry, I didn't hear that one.

James H. Miller - Chairman, President and Chief Executive Officer

$65 million.

Paul Patterson - Glenrock Associates

$65 million then it goes to $125 million in 2010.

James H. Miller - Chairman, President and Chief Executive Officer

Correct.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Correct.

Paul Patterson - Glenrock Associates

Okay.

James H. Miller - Chairman, President and Chief Executive Officer

Clearly and that's an expectation of some return to normal liquidity in normal markets.

Paul Patterson - Glenrock Associates

When I look at the cash flow statement for year-to-date versus the six months. The unrealized gain on derivative and hedging activities looks like it's about the same. Yet it looks like you guys were hurt by a loss. I am just wondering, where is that showing up on the cash flow statement?

I mean its, I think it was $84 million for the six months, which indicate that you guys had a gain and if we were just to look at the nine months cash flow statement, looks like its $83 million. And yet, my understanding is that you guys were negatively impacted by unrealized losses. Where on the cash flow statement do those show up?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes, just one second, I'm looking at the cash flow statement right now.

Paul Patterson - Glenrock Associates

Okay. And then just why you are looking at that--

Paul A. Farr - Executive Vice President and Chief Financial Officer

It would be in that same line item. But that's the net of all derivatives that the company may have in place. That would include the conversion of the euro with the Yankee Financing in the UK, which would have a big price move with the move in FX. That would include interest rate derivatives. That would include the entire portfolio. So, it is in that number.

Paul Patterson - Glenrock Associates

Okay. So it looks like guys had other gains that offset those losses.

Paul A. Farr - Executive Vice President and Chief Financial Officer

That's correct.

Paul Patterson - Glenrock Associates

Okay. And, are those gains what you'd normally expect? Or I mean, it sounds like there was some financial derivatives et cetera. Is that part of the trading business or what is--?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Again, I think the most significant piece of that is likely the Yankee Bond issuances is in the UK that has been swap to sterling. So that put... and that was put on when moran [ph] was in control of the entity and was swapped a long time ago. That better machetes that sterling a revenues and cash flows against sterling that in the UK. And whatever there is that's related to financial swaps that are in our interest expense and things like that are included again either current or forecast interest rate in the forecast.

Paul Patterson - Glenrock Associates

I got you.

Paul A. Farr - Executive Vice President and Chief Financial Officer

But most of it... that stuff is down the interest rates. But it's not that significant.

Paul Patterson - Glenrock Associates

Okay.And then the financing $0.12 impact in 2010. Just if you could break down, I mean just a little bit more in terms of how much of that, because of higher debt balances versus what you're expected cost to financing is? Or just a little bit more elaboration on that?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes, it's around $0.08 approximately due to higher debt balances and about $0.03 in credit facilities.

Paul Patterson - Glenrock Associates

Okay. Thank you very much.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Thanks.

Operator

Your next question comes from the line Jonathan Arnold of Merrill Lynch.

Jonathan Arnold - Merrill Lynch

Good morning.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning.

Jonathan Arnold - Merrill Lynch

Just wondering, if you could remind me what you had previously assumed in your former 2010 guidance on share repurchases and guessing that whatever was in there maybe is not in that stay?

Paul A. Farr - Executive Vice President and Chief Financial Officer

We had approximately $600 million included. It was originally $700 million, but that was before we acquired the Ironwood toll. So, that affectively took that down by $100 million. It's still in the plan but we pushed that a little back, a little bit further back on 2010 from early 2010. We do still do expect with significant increase in the cash flows and the enhanced flexibility that will be able to accomplish that. Again, if it's the way finding our growth opportunities that are a better shareholder value add.

Jonathan Arnold - Merrill Lynch

Andlooking at the cash flows forecast, it seems to be less than, I mean in 2010, it doesn't seem to be as high as $700 million, does that mean you're assuming you would actually finance to buy back in that timeframe?

Paul A. Farr - Executive Vice President and Chief Financial Officer

That's correct.

Jonathan Arnold - Merrill Lynch

Thanks.And then, on more of the trading standpoint, you guys these numbers on a percentage of gross margins coming out of the marketing and trading. And if I recall earlier this year, you were emphasizing trading as there is something you are going to be more active in. Can you talk a bit about what you're going to change post the experience of this third quarter? What's a reasonable target of that percentage going forward? And just, and you sort of shift to strategy and my sense if you were beginning to kind of put a little more emphasis on trading earlier in the year?

James H. Miller - Chairman, President and Chief Executive Officer

Sure. I think our emphasis on trading and marketing was really to reflect the fact that we're going to be coming off this rate cap period, where a lot of our generation was really year marked for the existing polar work in Pennsylvania. And recognizing that to optimize the assets and market around those assets would be important as emerging company going forward.

So, that was the reason we're probably emphasizing the fact that we needed to be more active in the space going forward. And having said that, we also indicated that we expected it to be in the range of 5% to 8% of total supply gross margins for both marking and trading combined.

So, again a fairly small number but I think in light of current marking conditions, we're just the lack of participants in the space today. The lack of liquidity particularly in the forward market, clearly we have to revisit that and reset expectations both for 2009 and 2010.

So, I think that if I had to say where are we today, not that we wouldn't still need to market and trade around our assets because it is a relatively large fleet. And we do need to participate in the market for price discovery and to really optimize the assets. But in terms of pure speculative positions as we have set in the past that's not our business model. And would never be. So hopefully that gives you a little perspective on our thought process.

Jonathan Arnold - Merrill Lynch

Thank you.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of John Kiani of Deutsche Bank.

John Kiani - Deutsche Bank

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Hi, John.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Good morning, John.

John Kiani - Deutsche Bank

Not to be labor the trading questions. But, I wasn't clear as to whether you have fully exited at those positions. If you have not it was a situation of where you started to but obviously the market liquidity dried up and therefore their unrealized losses. Can you give a little bit more color on what those positions were, it sounded like you were perhaps long power and kind of where you stand today?

James H. Miller - Chairman, President and Chief Executive Officer

Sure. I'll be happy to. We were long tower typically in the off peak markets down in 2012 and some puts in 2010, both of which became very quickly. Those positions have been closed out, did takes some time and as far as... don't looking forward we still expect the marketing and trading in total to be profitable for the year, all be it at much lower number than we had previously expected.

John Kiani - Deutsche Bank

And what was the bar for the marketing and trading business during the third quarter?

James H. Miller - Chairman, President and Chief Executive Officer

It was high of $10 million on a one day holding period. And, I think it was low during the period of $8 million.

John Kiani - Deutsche Bank

And that's under a 95% or 99% confidence?

James H. Miller - Chairman, President and Chief Executive Officer

95%.

John Kiani - Deutsche Bank

And, the collateral postings look like they had declined on slide 16, going in to September, what have they done in most recent periods, especially in month of October?

Paul A. Farr - Executive Vice President and Chief Financial Officer

October, that collateral postings?

John Kiani - Deutsche Bank

Yes.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Are less than $700 million.

John Kiani - Deutsche Bank

So, those have decline. Okay.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Cash is little less as well.

John Kiani - Deutsche Bank

Alright. And then, can you also talk a little bit about kind of the idea of, what you see in the long woods and the tools that you actually acquired, recently. Are those recognized under accrual or does it recognize under mark-to-market? How do you account for the tools that you recently purchased for the Ironwood, pardon me.

James H. Miller - Chairman, President and Chief Executive Officer

Yes. From an exact contract perspective, they would show up in our margin expectations, but they wouldn't show up on a mark perspective. We...

John Kiani - Deutsche Bank

Do you recognize iron, wood and the other tools under accrual accounting?

James H. Miller - Chairman, President and Chief Executive Officer

That's correct. We would capitalize the acquisition costs of the tool and be amortized in that off. And then the expensing that chargers under that tooling arrangement has accrued

John Kiani - Deutsche Bank

And since you acquired those tools? Would you say, if you did for economic purposes market to market would they be in or out of the money?

James H. Miller - Chairman, President and Chief Executive Officer

They would likely be in the current environment down from that original price point, but I don't have had a current economic value and we haven't disclosed the actual purchase price. And it's a single tool.

John Kiani - Deutsche Bank

Purchase down with. Okay.

James H. Miller - Chairman, President and Chief Executive Officer

Yes. There hasn't anything else purchase.

John Kiani - Deutsche Bank

Got it. Okay. Thank you.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Paul Ridzon of KeyBanc.

Paul Ridzon - KeyBanc Capital Markets

Good morning. How are you?

James H. Miller - Chairman, President and Chief Executive Officer

Good morning, good Paul.

Paul Ridzon - KeyBanc Capital Markets

I guess, I had a question on the un-hedge... the unrealized losses. What was the magnitude of that?

Paul A. Farr - Executive Vice President and Chief Financial Officer

It was approximately $0.20 in the quarter.

Paul Ridzon - KeyBanc Capital Markets

And why wouldn't we view that is kind of unusual item, since you have in exit to those positions?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Well. We view there, we have either right fitted them or batch them with load. So, they will not create P&L volatility on a go forward basis. They have been exited from our perspective and from our perspective, given again what happened in the third quarter, we clearly expect to not repeat that performance to those positions and but at the same time, marketing and trading is part of our core activities and there was no basis to curve those out at all.

Paul Ridzon - KeyBanc Capital Markets

They are now on accrual counting set, because they are matched?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Well no. They have either been by this point in time realize so they have been batched in any further price moves they would roll against and underlining hedge obligation and so the obligation we changed in value so we expect its positions to change and we would not see in that exposure.

Paul Ridzon - KeyBanc Capital Markets

And then the other question was, I was looking for an update on your NOx positions I didn't see it in the quarter?

James H. Miller - Chairman, President and Chief Executive Officer

In the release, if you read the release we did impair our annual NOx allowances and I believe the number was approximately $68 million, I don't have up it top of my head, but that's all that was impaired.

Paul Ridzon - KeyBanc Capital Markets

Okay, I missed that in sort of busy morning. Thank you.

Operator

Your next question comes from the line of Edward Haines of Catapult Capital Management [ph].

Unidentified Analyst

Good morning.

James H. Miller - Chairman, President and Chief Executive Officer

Good morning.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Good morning.

Unidentified Analyst

Just had a, first just had a quick clarification question on the Paul's question about marketing and trading, $65 million you're assuming in 2009 and $125 million in 2010, is that right?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Correct.

Unidentified Analyst

And that's for marketing and trading not just marketing?

Paul A. Farr - Executive Vice President and Chief Financial Officer

That's correct and that's gross margin.

Unidentified Analyst

Okay.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Sure.

Unidentified Analyst

And then, the second question is just on when you guys gave your open EBITDA and also your guidance assumptions, are you guys... what price deck are you using? Are you using the deck as of September 30?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes.

Unidentified Analyst

Okay. And what it seems like prices have some what declined kind of going back to your point about collateral even declining in October. What sort of impact would open EBITDA and guidance have if you have to layer in the current price deck? Do you have any kind of range direction there?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes, I think the best thing to use is that the chart on slide 23 which gave you the sensitivities that you want depending upon which review of market is in any given day. Take the dollar from megawatts hour of un-hedged and that would adjust up or down by $0.02.

James H. Miller - Chairman, President and Chief Executive Officer

Okay. So if I'm looking at PGMATC of $69 in your deck versus what we see today, we can apply those earning sensitivities and kind of get a better sense that where we might standing today.

Paul A. Farr - Executive Vice President and Chief Financial Officer

That's correct.

Unidentified Analyst

Okay, great. Thanks a lot.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line Daniel Sights of Five's Research [ph].

Unidentified Analyst

Thank you. I just was wondering if of the increasing O&M, how much of that was the un-collectables?

Paul A. Farr - Executive Vice President and Chief Financial Officer

In 2008?

Unidentified Analyst

Yes.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Nothing in 2008, nothing in 2009 and less than a penny in 2010. We have built in some expected under recovery of you will because of the step increased that's happening in that year.

But we've been pretty aggressive in the current year and expect to be next year and staying on top of customers, in advance to that increase.

Unidentified Analyst

Great. And in the $0.10 for the outage of the two plants, how much of that is to repairs and O&M and how much of that is coming from the output, all of that is the output the $0.10 exact?

Paul A. Farr - Executive Vice President and Chief Financial Officer

All of it, it's all output.

Unidentified Analyst

All output, great.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes there is a small amount of O&M related in terms of the construction activities, but it was minor.

Unidentified Analyst

Okay, great. Thanks a lot.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes.

Operator

Your next question comes from the line of Raymond Leung of Goldman.

Raymond Leung - Goldman

Okay. Guys, couple of things, can you talk a little bit about CapEx, it looks like you cut '09 buyback by 200 million Yen, 2010 went up by something like although related market delivery what else can you do on that front, if you needed to?

Paul A. Farr - Executive Vice President and Chief Financial Officer

We're looking at around $200 million of additional cut potentially. The real question in that is how much are we cutting in the month full at that point, we're trying to cut all discretionary CapEx wherever we're finding it, given a relative share value, the cost of capital, the cost of debt financing. We're not seeing anything make economic sense at this point in time or hardly anything at all I should pay. And virtually, we'll cut what ever we. We're still focused on the business planning process. We clogged back as much as we could from '08 to '09 but I have a work to do for '10, '11 and '12.

Raymond Leung - Goldman

Okay. Two other questions, any update on pensions and any implication there? And then, finally if you could talk about, have you talked to the rating agencies with the revised guidance and sort of any comments from that standpoint? And if you could remind us if there is any impact to collateral requirements on there potential downgrades?

James H. Miller - Chairman, President and Chief Executive Officer

Okay. Let me tackle, I think there was brilliant if at all I missed one let me know. I do not see... we've have factored into the 2009 forecast what we expect from asset value moves, current discount rates, mortality changes, pay changes all the things that would factored into a cost number for the pension perspective. That's been factored into the 2009 guidance.

For, both the U.S. and the UK, the decrease or the credit downgrade, a credit downgrade scenario, we're approximately $1 billion in terms of additional posting requirements if we had a two NOx downgrade. So, we're sub-investment grade. We have not... as of right now had conversations with the rating agencies but will the very near future I think, my treasurer has a call lined dup today with them to walk through the drivers of the forecast, the change in the commodity environment. And we'll let you know that we're obviously extremely still committed to our investment grade ratings.

Raymond Leung - Goldman

Okay, great. Thanks guys.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line Jed Arnold of King Street Capital [ph].

Unidentified Analyst

Hi, guys.

James H. Miller - Chairman, President and Chief Executive Officer

Hi, Jed.

Unidentified Analyst

Could you talk a little bit about the change in CapEx for 2009 for the supply and also the change in 2010 CapEx for delivery?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes. In terms of change for 2009 for supply, it reflects basically elimination of where ever we haven't made commitments around additional renewable investments we've eliminated those. We are canceling or deferring hydro opportunities. We're significantly scaling back, substantially scaling back nuclear development activities. Again, where we have been available to identify opportunities, we've made those cuts. We're still looking but that's been the biggest move. The increases that are coming on to the delivery front, more for 2010 than they are 2009 in delivery are driven by the RTF project, which we're seeing cost escalation on in other transmission investment opportunities of the utility identifying.

And with, formula rate and the ability to get the medium returns on that stuff, if we expect those to be economic. The WPD is primarily driven by a change in regulatory requirements in the UK around line clearance as we are going to obligated to move certain lines of hold and get full recovery on that. But that's a multi-year projects initiated by the regulator.

Unidentified Analyst

Perfect. And then, just a recap a little bit of what happened on the legislative front. I heard that the governor had all the utilities in for that four or five hours which from what I heard by the first on the governors ever done that for settle on. How close do you think we came... deal gone passing this past legislative session?

James H. Miller - Chairman, President and Chief Executive Officer

Jed, this is Jim. Yes, we did individually as met with the Governor. They were to your point I think the first time that are face to face as occurred on the subject. I think it's a little bit difficult to answer how close, I wouldn't say that the deal was imminent.

I think there were important points discussed. I think the Governor's interest, I certainly expressed his interest and what ultimately became House Bill 2200 that was passed, we talked about that a bit. And we talked about issues pertaining to possible rate mitigation approaches. But I think, given the very tight timeframe that we were facing with the matter of a few days that legislature had to work.

I just don't think there was adequate time to go beyond the subject matter of House Bill 2200 and include a solution to rate mitigation if one was to be reached. So, my answer would be all the issues were discussed, the time period was extremely short, and I think all things said and done people realized it was not possible to deal with rate mitigation.

At the same time they don't call the issues that ultimately ended up in House Bill 2200. So, I think this, if these discussions are to resume that will be after the first of year.

Unidentified Analyst

I guess, from what you said, it's fair to say that all the issues that have been raised that are going to be raised. I mean obviously, if that would change your mind. But, you take all the issues out there on the table on the other side, I understand what the issues are. So, we come back in January, its not going to be a whole new menu of the things that.

James H. Miller - Chairman, President and Chief Executive Officer

Yes, I think that's fair statement. I think that the issues that were discussed in the meetings were no surprised to make for that matter and not speaking for others. But I don't think that was surprise with anyone. I think we were clearly faced with a just in intangible timeline that didn't allow all of the issues that were put on the table to be dealt with in any sense for what.

Unidentified Analyst

Thanks so much, guys.

Operator

Your next question comes from the line of Razor Hatatee [ph] of Decade Capital.

Unidentified Analyst

Thank you. Could you talk about the Pennsylvania delivery CapEx and recovery for all that CapEx that's materially higher than your depreciation. I am just wondering if there a rate case coming at some point in the next two to three years then the plan?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Well. We have that in our formula rates approved. So, from the transmission perspective that doesn't require a rate case we would expect with the cost pressure is that we are seeing that we may be looking at a rate case a bit earlier than we have previously forecast.

But obviously given lots of moving pieces right now. We will wave the timing in that appropriately.

Unidentified Analyst

Is there a rate at the delivery side, distribution side. Is there a rate increase assumed in the 2010 guidance?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Not. Not in '10.

Unidentified Analyst

And then the CapEx that we see here $281 million in '08 and $293 in '09 and $580 in '10. How much of that is a transmission?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Ballpark. Virtually, all of the increase in '10 is coming from transmission. There is a little bit of I think enhanced through liability projects now in the distribution front but virtually all of that is transmission.

Unidentified Analyst

And, I'm sorry if I missed this earlier. But could you give us a little flavor on your average delivered coal cost hedges for 2010, I guess 89% its hedges in east.

James H. Miller - Chairman, President and Chief Executive Officer

Sure, just one second. I know what's going to labor our work. We're probably looking at delivered basis somewhere in the range of, for 2010 I would say somewhere in the range of $60 to $70 a ton delivered.

Paul A. Farr - Executive Vice President and Chief Financial Officer

It's going from roughly 51 to 61 from eight to nine and then there is some level of increase in '10.

James H. Miller - Chairman, President and Chief Executive Officer

51 in '08, 61 in '09 and 60 to 70 in '10. And then does it sort of leverlize for '11 and '12, or is there a continued increase?

Paul A. Farr - Executive Vice President and Chief Financial Officer

There is some increase since year-over-year.

Unidentified Analyst

Okay. And just finally, your marketing and trading guidance you talked about I think $65 million in '09 and 125 in '10. I just want to make sure that apples to apples to slide 18 where '06, it was 78 to 145 in '07 and then so on it will be 125 in 2010?

Paul A. Farr - Executive Vice President and Chief Financial Officer

That's correct.

Unidentified Analyst

Right. And the gross margin?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes, that's correct.

Unidentified Analyst

And I guess just one last question I was looking back at your third quarter 2007 slides year ago, and your eastern power hedges in 2010 were 47% hedge up to 76% now. And my calculation that's 29% something along the lines of 14 terawatt hours or so. And we've also had two options since then as well, each one maybe being six or seven terawatt hours in Pennsylvania. What is the strategy there in terms or would have thought there will be more hedges I guess over the course of the year before 2010 starting from that 47% base and now 76. I would have thought you would be taking advantages of high power price we saw in a first half of '08 over the more. Could you talk about your strategy there?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Well, we did on a block basis as well as we evaluate in a multi load following opportunities through out the year. Yeah we were more than 50% hedged on base flow Gen before the utility conducted the first load following deal. So, we do looking at buying back from the market and reselling. There is element of risk in Pennsylvania around the utilities given the discussions that were going on in Harrisburg. So, I think we appropriately evaluated those opportunities.

We'll continue to in the future. The other limiting factor that we'll face and we make it in slower than more detail maybe at EEI. There is an absolute limit to how much we can hedge on a multi-year basis given the amount of credit facilities that we've got. Even that we've got the third or fourth largest amount in the sector. We cannot hedge 100% for the next 3 or 4 years, it's not reasonable it wouldn't be a prudent thing to do and we've seen what happened to others by being too hedged if you will. So, we'll continue to evaluate the opportunities on a load following basis as well as financial hedges and execute accordingly.

James H. Miller - Chairman, President and Chief Executive Officer

It's a balancing act, it's really a balancing act trying to as Bill said our philosophy is to try to assure as much certainty in the next years earnings as we possibly can into a sensible robust hedging program. But we still have to account for the fact that many of the load following deals are multi-year in nature and that has credit collateral posting implications as well. So, it is a balancing act, but we think, we review our hedging philosophy on a real sign basis based on market conditions and certainly these latest market conditions that have been last three, four months have caused us to reassess, and I think re-visit our hedging policy and come to the right approach. Secure the near-term earnings as much as we can and leave room for participation in multi long-term load following deal opportunities.

Unidentified Analyst

Thank you, understood. Thank you.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Jed Arnold of King Street Capital [ph].

Unidentified Analyst

Yes, hi. Can you hear me?

James H. Miller - Chairman, President and Chief Executive Officer

Yes, sure.

Unidentified Analyst

I apologize if you've covered this before. But I'm just trying to get a better bridge for the 2010 open EBITDA for that you have for this quarter relative to the initial guidance. And the question I'm trying to understand is, if I look at the forward that you have as of '10, 2007 when you first gave your guidance. And the forward 2010 now, and given that we're basically going, we had forwards in license and then coming down these levels. I'm not sure I understand why we've go from the open EBITDA of 2.8 billion down to $2.2 billion?

Paul A. Farr - Executive Vice President and Chief Financial Officer

When we had our, maybe I'm missing the point but we had not given open EBITDA back when we gave the original forecast. But when we started forecasting expected margin which was the approach that we are taking, we are right at around 3.3 billion. And the current number is 3.27.

So, that's mainly a reflection of the decreased expectations in marketing and trading that came down from around a 150 to 155 million down to 125 as we discussed previously. But that's you are seeing some higher O&M balances there and some higher fuel as well. So, you can just pay the power price change you have layer in kind of all the variables. But we've been able to basically hold the margin forecast from the prior 430 mid point.

Unidentified Analyst

Okay, alright. Okay, thank you.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes.

Operator

Your next question comes from the line of Mark Segal of Canaccord Adams.

Mark Segal - Canaccord Adams

Hi, good morning. I was just wondering if you could provide us an update on the status of your latest smart metering activities. And what if any your plans are going forward?

James H. Miller - Chairman, President and Chief Executive Officer

Well,I think we're in very good shape and that's all of our $1.3 million customers on the electric side already have advanced meters installed. And with the latest house built 2200, we believe that the language provides the capability continues to reduce those existing meters. Now as we change out those meters and we will probably replace them with the next generation of meters. But I think we feel pretty good with where we have the see our smart meters right now.

Mark Segal - Canaccord Adams

So, replacement would be some ways often the future?

Paul A. Farr - Executive Vice President and Chief Financial Officer

It would, since states are only, I think we installed these in about 2005.

Mark Segal - Canaccord Adams

Okay, great, thank you so much.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Sure.

Operator

[Operator Instructions]. Your next question comes from the line of Brian Russo of Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Good morning. Could you tell us about your load growth or sales growth assumptions are at the domestic delivery business in 2009 and 2010?

Paul A. Farr - Executive Vice President and Chief Financial Officer

9 and 10 are relatively flat. There's a couple of drivers that are I think are little unique for just tracking the macro economy. But macro economy has factored in the price increase from 2009 and 2010, and the expected change in customer behavior because of that. As well as the utility obligation that comes from House Bill 2200 to shave deep demand. All those factors combined have us with utility load forecast that are relatively flat for 9, 10, 11. And then we do, we would expect some returns to call it normal see where we see, percent to percent half low drill following that time period as customers get since the time to the higher cost.

Brian Russo - Ladenburg Thalmann

Alright. Thank you very much.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Sure.

Operator

Your next question comes from the line of Greg Gordon of Citigroup.

Greg Gordon - Citigroup

Thanks, I have a follow question. When you talk about the other marketing and trading function, a 125 million of expected or targeted gross margins in 2010. You just currently show how that's roughly? And how much of that is really in the sort of trying to capture both serving people versus traditional trading? Because when I look at your guide, I know, I see that you're telling us to assume you hedged the wholesale prices really, one would presume that some portion of your business will ultimately be both serving. So, is part of that $125 million really load serving premiums that you expect to win for auction or is it majority of that sort of additional trading?

Paul A. Farr - Executive Vice President and Chief Financial Officer

Yes, that's basically, virtually all of that activity in the way that we encourage to, that the way we are--

Greg Gordon - Citigroup

Performer not the later both serving in the not trading?

Paul A. Farr - Executive Vice President and Chief Financial Officer

That's correct. That trading has always been a dominions part of the activity. They're very interrelated which is why we group them together but that's always been the focus for the past several years as on those marketing load following type opportunities. As we reported the sound over the past few years, it's been load serving beyond our current utility affiliate contract. Because that's been a multi-year contract in place for several years.

So, in the past couple of years it was focused on marketing beyond the generation resource as we transitioned out of that contract, the loads following in terms of absolute amount, it doesn't have to change that significantly from the recent years to still capture that $125 million. So, we're hopeful that we can do better than that but again in the current environment we've been trying to plan appropriately for that environment.

Greg Gordon - Citigroup

Okay. So just to be clear it seems to me that the risk profile around that trading business evolves to one more where you're getting appropriate load serving premiums above and beyond the wholesale prices at which you have hedged. Rather than chasing load serving premiums outside of your core contracts which is the way things might go due to the transition. But that's fair translation.

James H. Miller - Chairman, President and Chief Executive Officer

I think that's right. The core aspect of our marketing and trading is clearly on the assets themselves. Our core assets or based low generation. And we have, as Paul mentioned, participated in serving loan in our regions but over and above our parking and trade... parking for our existing generation assets.

And, I think we'll continue to do that. But again, it's a fairly small amount of relative to size of our base load fleet but it allows us to really understand the markets and it helps really position us for our own fleet when we participate in these markets regionally. So, I think that you're correct in that the marketing is the dominating value driver here, and clearly the trading is the compliment to it. But it's been a relatively small portion, as you can see from my slide 18.

Greg Gordon - Citigroup

Thank you.

Operator

The next question comes from the line of John Kiani of Deutsche Bank.

John Kiani - Deutsche Bank

Hi, thanks for taking my follow-up.

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

John Kiani - Deutsche Bank

You had in the past briefly discussed the potential to start blending and switching to some Illinois base in type calls. Can you give us an update in where that stands and how you see that progress going forward?

James H. Miller - Chairman, President and Chief Executive Officer

Sure. We did do one successful test earlier in the year. We're in the process of doing a second test. We do think it has an opportunity there, and when it continues to pursue that. As I mention I think in the second quarter call, we need to make some modifications to our plans to accommodate both PRB as well as the '09 base in call, we do have this plan for next year and I believe those are less than $20 million in cap more improvements. So its not a large CapEx spend when if we would think to provide the flexibility is probably money will spend.

John Kiani - Deutsche Bank

So from a timing perspective when would you expect to be blending and burning more alloy base in PRB coal, and can you give us just a ballpark percentage on your PJM fleet and what that would roughly translate into from a percentage of full portions of your coal supply needs?

James H. Miller - Chairman, President and Chief Executive Officer

Sure. We could begin as early in next year and from a percentage perspective the upper end is 20 but for planning purposes, I think we're planning for more like 10%.

John Kiani - Deutsche Bank

And then your 2010 revised 2010 earnings guidance are you assuming any incremental PRB and alloy base in coal burn at that this point?

James H. Miller - Chairman, President and Chief Executive Officer

We are not at this point

John Kiani - Deutsche Bank

So any PRB in alloy coal basin burn if you get up to 10% or 15% or whatever it might be is upside based on the current forward pricing environment relative to your revised 2010 guidance, is that correct?

James H. Miller - Chairman, President and Chief Executive Officer

Correct.

John Kiani - Deutsche Bank

Okay. Thank you

James H. Miller - Chairman, President and Chief Executive Officer

Sure.

Operator

[Operator Instructions]. Your next question comes from the line of Razor Hatatee [ph] of Decade Capital.

Unidentified Analyst

Thank you a just of couple of quick follow ups. The coal... average coal cost delivered for 2008 through '10 that you gave earlier, I guess as a basis for a relative basis, what was 2007 leverage delivered cost?

Paul A. Farr - Executive Vice President and Chief Financial Officer

We don't have that one handy Razz, if you want to do a follow up with Tim or Joe they can get that for you

Unidentified Analyst

Sure. And, then just lastly could you remind us in the 2010 earnings guidance is there a WPD rate increase assumed in that?

Paul A. Farr - Executive Vice President and Chief Financial Officer

With the full breadth of expected changes inclusive of Vermal inflation and everything else that we know of right now is in there, yes.

Unidentified Analyst

Thank you very much.

Paul A. Farr - Executive Vice President and Chief Financial Officer

Sure.

Operator

There are no further questions at this time. Gentlemen, do you have any closing remarks.

James H. Miller - Chairman, President and Chief Executive Officer

No. I think, thank you for attending the call and I appreciate it. Thank you, thank you operator.

Operator

You're welcome. Thank you for participating in PPL Corporation's Third Quarter Conference Call. This concludes today's conference. You may now disconnect. .

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